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Did American Express Mislead Business Owners?
The investigation grew out of attempts to get owners to charge their employee payrolls.
Here are today’s highlights:
An ad agency encourages businesses to aim their marketing not just at customers but also at potential employees.
Job growth in June was solid but less than economists expected.
Reports of increased productivity among those working from home may have been premature.
There could be legal risks for businesses using ChatGPT.
American Express is being investigated over how it sells to small businesses: “Amex has sought to portray the effort to sell the tax product — which allowed small-business owners to use business income to pay employee expenses in return for personal credit-card rewards points — as the work of rogue salespeople acting out of line. Most of the leaders of Amex's sales team have either been fired or otherwise left the company, but Amex has not placed any blame on more senior executives. Internal sales material seen by Insider, interviews with former salespeople, and the legal claims raise questions about whether senior managers knew the product was being pitched to help avoid taxes and how high up the corporate ladder the awareness went.”
“For many years, a holy grail for Amex salespeople was to get business customers to charge employee payroll, which is often a company's largest expense, to their credit cards. It promised billions of dollars in additional volume that could be routed through the company's payments infrastructure — giving Amex a cut of every dollar.”
“Business owners charging payroll to their credit-card provider was more or less unheard of, but Amex figured out a workaround. One initiative began when Amex started working with a third party, a Canadian company called Payroll by Credit Card. Amex used the company's technology to route salary payments through its system.”
“Sometime around 2018, Amex executives found a way to cut out the middleman. ... Called Premium Wire, it allowed customers to use their Amex account to fund payroll. Amex would send a wire on a client's behalf to its payroll company, which would then pay employees. Business owners repaid Amex, plus a fee, which some salespeople told the owners they could write off as a business expense.” READ MORE
Sam Burn, a partner at Cayenne Creative, a Birmingham ad agency, says more businesses are marketing to potential employees: “First, we are seeing and responding to a shift in need. In addition to driving demand for our client’s products and service, we are also answering their need to build more attractive and resilient cultures by not just repurposing marketing spend to recruitment but refocusing messages on our client’s purpose with messages that attract both new hires and new consumers. Second, it is clear to us that the hiring crisis is not a temporary inconvenience but, instead, an endemic and systemic one.”
“And third, we are leveraging our consumer-centric marketing experience to develop innovative and new, fresh ways to recruit and retain employees. The conventional rules of established recruitment marketing groups are just not as effective as they once were.”
“There are historic staffing shortages in the health care, skilled labor, education and food service industries, plus more I am likely less attuned to. These industries are in straight-up crisis. But from crises emerge creative solutions.” READ MORE
Payrolls rose less than expected in June: “Employment growth eased in June, taking some steam out of what had been a stunningly strong labor market. Nonfarm payrolls increased 209,000 in June and the unemployment rate was 3.6 percent, the Labor Department reported Friday. That compared to the Dow Jones consensus estimates for growth of 240,000 and a jobless level of 3.6 percent. The total, while still solid from a historical perspective, marked a considerable drop from May’s downwardly revised total of 306,000 and was the slowest month for job creation since payrolls fell by 268,000 in December 2020.”
“Closely watched wage numbers were slightly stronger than expected. Average hourly earnings increased by 0.4 percent for the month and 4.4 percent from a year ago.”
“Job growth would have been even lighter without a boost in government jobs, which increased by 60,000, almost all of which came from the state and local levels. Other sectors showing strong gains were health care (41,000), social assistance (24,000) and construction (23,000).”
“The retail sector lost 11,000 jobs in June while transportation and warehousing saw a decline of 7,000.” READ MORE
The latest research shows that reports of increased productivity among those working from home may have been premature: “A good starting point is a working paper that received much attention when it was published in 2020 by Natalia Emanuel and Emma Harrington, then both doctoral students at Harvard University. They found an 8 percent increase in the number of calls handled per hour by employees of an online retailer that had shifted from offices to homes. Far less noticed was a revised version of their paper, published in May by the Federal Reserve Bank of New York. The boost to efficiency had instead become a 4 percent decline.”
“The researchers had not made a mistake. Rather, they received more precise data, including detailed work schedules. Not only did employees answer fewer calls when remote, the quality of their interactions suffered. They put customers on hold for longer. More also phoned back, an indication of unresolved problems.”
“David Atkin and Antoinette Schoar, both of the Massachusetts Institute of Technology, and Sumit Shinde of the University of California, Los Angeles, randomly assigned data-entry workers in India to labor either from home or the office. Those working at home were 18 percent less productive than their peers in the office.”
“The reasons for the findings will probably not surprise anyone who has spent much of the past few years working from a dining-room table. It is harder for people to collaborate from home. Workers in the Fed study spoke of missing their ‘neighbors to turn to for assistance.’” READ MORE
In New York City, companies will have to prove that their hiring software isn’t biased: “A new law, which takes effect Wednesday, is believed to be the first of its kind in the world. Under New York’s new rule, hiring software that relies on machine learning or artificial intelligence to help employers choose preferred candidates or weed out bad ones — called an automatic employment decision tool, or AEDT — must pass an audit by a third-party company to show it’s free of racist or sexist bias. Companies that run AI hiring software must also publish those results. Businesses that use third-party AEDT software can no longer legally use such programs if they haven’t been audited.”
“Companies are increasingly using automated tools in their hiring processes. Cathy O’Neil, the CEO of Orcaa, a consulting firm that has been running audits of hiring tools for companies that want to be in good standing with New York’s new law, said the rise in tools that automatically judge job candidates has become necessary because job seekers are also using tools that send out huge numbers of applications.”
“AI-infused hiring programs have drawn scrutiny, most notably over whether they end up exhibiting biases based on the data they’re trained on. Studies have long found that programs that use machine learning or artificial intelligence often exhibit racism, sexism and other biases.”
“Even if the audits help reduce some bias against job candidates, it’s still not clear that AI job screening is particularly good at what it seeks to do.” READ MORE
Tell me again why we’re rolling back child-labor laws: “Iowa is the latest state to take aim at child labor protections, enacting one of the most significant roll backs to date. In late May, governor Kim Reynolds signed a law that expanded the permitted working hours and places of employment for teens as young as 14 years old. Iowa’s bill, which violates federal law according to the Department of Labor, went into effect on July 1.”
“The bill allows adolescents to participate in activities usually deemed inappropriate or dangerous for minors, such as serving alcohol, working in one of the state’s 200-plus meatpacking plants, operating heavy machinery, or joining demolition projects, among other provisions.”
“It’s not just Iowa. At least 14 states have sought to weaken regulations against the employment of children over the past two years, the Economic Policy Institute recently noted, even as violations of those laws have been on the rise.”
“‘What’s really driving this is a desire of corporations to pay less for labor. If pay were higher and conditions were better, there would likely be enough adults willing and available to do the work,’ said Kate Andrias, a professor at Columbia Law School who specializes in labor law, in a recent interview with the university.” READ MORE
Gene Marks encourages business owners to consider hiring formerly incarcerated job candidates: “Just about every small business owner I know is struggling to find workers in this very tight labor market. But there’s a potentially good solution for this problem: Why not hire formerly incarcerated people? According to the advocacy group Prison Policy Initiative, formerly incarcerated people are unemployed at a rate of over 27 percent — higher than the total U.S. unemployment rate during any historical period, including the Great Depression.”
“‘Employers should always partner with an organization,’ said Tim Styer, the president and CEO of Ride To Work. ‘The good ones will help screen, provide training and offer other services to make the hiring process easier. This is what we — and groups like us — do. We have the experience.’”
“Harry Michel, who owns and operates WashLB, a ‘location-based’ car care service headquartered in [Philadelphia], has employed ‘more than a hundred’ formerly incarcerated workers. He also encouraged employers to use support organizations and to also commit the resources needed to ensure that these workers can transition to not only their jobs, but to society.”
“‘People coming out of prison will need extra attention,’ he said. ‘Employers must be prepared to spend time with them. They should proactively be talking to them about personal decisions, life decisions, struggles that they’re going through, and how to manage those things.’” READ MORE
There may be significant legal risks for businesses using ChatGPT: “‘Business owners need to keep a watchful eye on legal developments. Or else they can face litigation on charges of everything from hiring discrimination to copyright infringement,’ said Scott Lieberman, founder of Touchdown money, who also uses ChatGPT regularly. He stressed that business owners using AI tools to create images or articles are not generating those articles from scratch, but merely reassembling them from tiny pieces of existing works — a technique he compared to ‘sampling’ in hip-hop music, in which producers often take small pieces of existing songs, loop them and added new instrumentals, lyrics and sounds over it. ‘It took the law time to catch up but hip-hop producers had to pay millions in royalties to those original artists for using their content,’ Lieberman said.” READ MORE
Germany bet big on China, which is why the family businesses that drive the German economy are worried: “Amid the ruins of a city ravaged by World War II, Karl Haeusgen’s grandfather invented a hydraulic pump he was so proud of that he founded a company to sell it. Back then, there were no revenue projections or five-year growth strategies. The plan was survival: ‘It was just about grabbing chances,’ Mr. Haeusgen said. Seven decades and three generations later the family business, Hawe Hydraulics, ships some 2,500 parts around the globe. Instead of scrambling for sales, though, Mr. Haeusgen must parse the geopolitics of an ever more polarized world. ‘A third of my business, if not more, depends on how Biden and Xi get along,’ he said. ‘I sometimes wish I ran a restaurant and didn’t have to care about global politics.’”
“Though Germany’s 20th century success as the economic powerhouse of Europe is often seen through its biggest brands — like Volkswagen, Mercedes, and Siemens — it is small and medium enterprises that are the backbone of its economy.”
“These companies, known in German as the ‘Mittelstand,’ are struggling to create a model for the future, as the country’s socioeconomic order begins to falter under the weight of stalled modernization and ruptures in global politics.”
“‘The German business model, particularly Mittelstand, is being extremely good at doing one thing: Slowly but steadily perfecting one product,’ said Mathias Bianchi, spokesman for the German Mittelstand Association. ‘Because that worked so well for years, they had no need to adapt to changes. But now, they need to adjust to the new economic reality.’” READ MORE
THE 21 HATS PODCAST
Why Do You Pay What You Pay? This week, Paul Downs, Jay Goltz, and Sarah Segal talk about where the dust has settled after years of turmoil in the labor market. As you know all too well, we’ve been through Covid, supply-chain issues, inflation, labor shortages, the Great Resignation, minimum-wage hikes, new pay-transparency regulations, and countless rumors of recessions that have yet to come—all of which has had an impact on wages. And that’s why I decided to ask Paul, Jay, and Sarah where their thinking has landed. The consensus here is that leverage is shifting back to employers, but Paul, for one, remains committed to paying his people more than they can find elsewhere. “It's worth it to me to have the team I want,” he says. “And sure, it affects profitability, but turnover affects profitability, too. And I'd rather not have that.”
Plus: We also talk about whether Lululemon was right to fire two retail employees who tried to stop a robbery, and we answer the following listener question: If something’s not working, how do you know when it’s time to walk away?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
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